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British capital outflows, 1870-1914: a “ global saving need” p ersp ective

Alex Armand June 2 0 0 6

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Contents

1 Intro duction

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2 The development of Capital exp orts

 

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Development, destinations and s tru cture

 

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3 The nature of asset demand and supply

 

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3.1 Saving rates, investments : the “ global saving need”

 

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3.2 Returns and Diversification

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3.3 Supply side and pref erences

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4 Trade or Capital Markets?

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5 Conclusion

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1 Intro duction

A massive amount of capital outflows f rom Great Britain characterized the

p erio d b etween 1870 and 1913 and sh ap ed deep economic consequences all over the world. This p ersiste nt trend directly influenced the British economy by generating an astonishing increase in its share of overseas income. As we can observe in Figure 1, this share passed f rom around 2% of GDP in 1870 to more than 6% at the turning of the century and then, af te r a small down-turning, again ab ove 6% in 1913. Why such an imp ortant fl ow of capital was leaking Britain toward overseas countries? Which were the main f orces driving such a phenomenon? In order to understand the reason f or such a gigantic outflow of capital f rom Britain, it is necessary to understand the dynamics of its course and the main f orce that were determining the asset demand and supply, then to recognize if capital markets were the main f orce driving such phenomenon and contrast it with trade related f actors. Figure 1 Share of ove rs eas inc om e as a p ercentage of GDP, 1870-1913 (Feinste in, 1972).

Moreover, it is imp ortant to understand that the p e ri o d during the which British capital outflows consistently coincides with a larger and global phe nomenon, known by historians as the “ First Wave of Globalization” . The decades b etween

1870 and World War I have b een determined by f ree capital mobility, f ree trade,

mass mi gration flows, the Gold Standard and an international system mainly ruled by British hegemonic p ower. Under the p ersp ective deve lop ed in the

pap er, this global phenomenon has to b e fixed as central, since the deep changes

in the international system could explain the magnitude of capital mobility f rom

Great Britain in the way they allowed f or exchanges b etween countries with

saving-investment surpluses and countries characterized by deficits.

2 The devel opment of Capi tal exp orts

2.1 Development, destinations and structure 1

From 1865 to 1914, Britain totally raised around £4.1 billi on f or inve stments overse as , but capital already b egan to outflow s f orcef ully af ter 1855, rising at

an average rate of 4% GDP p er year. This tendency resulted in an increase of

the share of net sto ck of overseas assets over the total wealth sto ck, f rom 8% in

1855 to 33% in 1913 2 . Following Stone (1999), we can f o cus on the p erio d of

the ma j or increasing trend in capital exp orts and divide it in six sub-p erio ds, f rom 1870-1913. As it can b e observed f rom the figure 2, the course has b een characterized by di erent series of increases and down-turnings: in general two increase-decrease patterns characterized the first three p erio d, resulting in a relatively small di erence b etween 1870 and 1893. From f ourth to sixth p erio d,

1 Stone (1999), Edelstein (1994). 2 Edelstein (1994).

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the trend recorded instead a strong increase, reaching the p eak j ust b ef ore World War I in 1914, with a flow of around 9.5 tim es higher than the flow in 1870.

The main characteristic of British capital exp orts was the concentration, in the sen se of country destination, investment channel and financial instrume nts. Even if Britain was exp orting c ap ital toward 150 countries in the world, almost half of the total exp orts during 1865-1914 was conce ntrated in Unite d States, Canada, Argentina, Australia and India, while around 90% flowed to around 25 countries (among which British colonies or p ossessions ). In s ome senses, it is surprising that the ma j ority of flows were designated to countries outside the Empire. In f act, only 40% of the total capital exp orts went to the Empire, where investments in raw materials were pref erred. In b oth destinations, private industry investments were predominant.

Governm ent b onds (mainly in Australia, South Af rica, India and Brazil) and railroad securities (prevalent in Northern America and Argentina) were the main channels of c apital exp orts and were representing around two thirds of the ag- gregate value. In term of financial instruments, British capital exp orts were mainly concentrated on fixed-interes t obligations: in f act, deb entures and pref - erence shares were comp osing around three f ourths of total flows, while equities were representing 23% and notes j ust 3%. T hen, assuming a risk rationale in inve stment decisions, capital flows were more related to p ortfolio investments, instead of direct investments, in which the risk f or large scale pro j ects (such as railways) is relevantly higher.

3 The nature of asset demand and suppl y

3.1 Saving rates , investments: the “ global saving need” 3

This p ersp ective is basically related to the concept of investm ent-saving b ehavior and to the notion th at in a closed economy, national investments and savings must b e equal in every p erio d. Howeve r, in an op en economy, this identity

do esn’t necess ari ly have to b e equal in every p erio d. In f act, if the national sav- ings exceed national inves tments, the excess can b e lent by s avers abroad: this

di erence can then b e considered a ma j or f orce driving capital outflows if the

net amount of British net f oreign lending equals the imbalance. Since the p erio d 1870-1914 (known as the “ first wave of globalization” ) has b een characterized by

unprecedente dly high degree of op ennes s, an explanation of capital flows cannot avoid to f o cus on inte rnational equilibria and dynamics, i.e. the relation b e- tween national savings and investm ents. A global savin g need, which generated exchanges in capital b etween countries with saving-investment surplus es and countries with deficits, could then explain the quick increase in capital outflows f rom Great Britain toward overseas countrie s.

3 As Bernanke emphasized on U.S. current account d eficit in 1990s.

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In the years b etween 1870 an d 1913, Britain economy was running an excess of national savings relatively to national investments, but w hat was gene rating this disequilibrium? In i ts f amous critique to Imp erialism in 1902, Hobson claimed that Britain had a bad distribution of income, which was generating in the p erio d an excess of savings re latively to national inves tm ents. This must have b een the main reason f or such an imp ortant capital outflow in the history of Britain, driving down the domestic returns and reducing domestic consump tion. Other evidence comes f rom Edelstein (1994), who f ound that British investments were lower than the level of savings, reaching two p eaks in 1877 and 1901; he f ound surprising that f ollowing these two p eaks, a rapid expans ion in overseas inve stments recorded in 1879 and 1904. Evidence s ugge sts then that in the last part of the XIXth ce ntury, Britain was gen erating an excess on national savings in relation to domestic investments : the characteristic of income distribution, which generated a higher level of savings relatively to investments, can then b e assumed as a central characteristic of British Victorian economy.

It is not surprising that that the sharp increase of capital outflows f rom Britain coincide with the most imp ortant emigration flows in XIXth century. A de- mographic analysis is then necessary to understand the global need f or capital and then the role of Britain. In the p erio d b etween 1870 and 1914 around 60 million p eople emigrated f rom resource-scarce and lab or-abund ant Europ e to resource-abundant countries ove rs eas. The destinations were mainly represe nted by Argentina, Australia, Brazil , Canada, New Zealand and United States, not surprisingly even the main des tination s of British capital. Moreove r, the need f or savings came as well f rom the comp osition of emigrants: more than thre e quarters of immigrants, who went to the United States, were f rom 16 to 40 years old, nam ely their comp osition were skewed toward younger generations. This characteristic, generating higher prop ensities to consume, tied to the low income of the high ma j ority of immigrants can explain the strong need f or f or- eign savings. The growing numb er of immigrants, the high f ertility and the low inf ant mortality generated f ast p opulation and lab or force growth in the over- seas regions , which in turn created a strong need f or investments in capital 4 . High de p endency rates could then b e the reason f or high requirements f or f or- eign s avings in order to exploit investment p ossibilities, creating a strong link with British excess of savings. Moreover, di e rences in income and in p opula- tion distribution can clarify the capital outflows in 1870-1914 toward overseas countries esp ecially f rom Unite d Kingdom. Observing Fi gu re 3 and the data for GDP p e r capita, in 1870 Great Britain disp osed of a relatively higher income. In this year, Great Britain generated a GDP p er capita of 3.263 US$ 5 , whi le some overseas countries were significantly p o orer, than retu rns to capital would b e higher and demand f or savings stronger: in the same year, United States recorded 2.457 US$, while Canada and Argentina pro duced less than half rela- tively to Great Britain, with resp ectively 1.620 US$ and 1.311 US$. Moreover,

4 Green and Urquhart (197 6), Edelstein (1982). 5 Expressed in constant terms, US$ 1990.

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comparing GDP p er capita in 1870 and 1913, we can have a dimension of the

di erences in growth and of the convergence : overseas country grew much f aster

than Great Britain, underlining the growth p otential of such countries in 1870. While GDP p er capita in Great Britain along the p erio d 1870-1913 grew on average by 1.01% p er annum, growth in ove rs eas c ou ntries evolved much f aster

(e.g. Argentina grew by 2.50% p.a., while United States by 1.81% p.a.).

Following this rationale, Taylor and Williamson (1994) analyz ed the dep en- dency ratio e ect over the s avings in the New World economies. Obse rving Argentina, Australia, Canada and United States, they f ound that the reduction of dep endency rates generated a reduction in the capacity of generate capital. A distribution of p opulation strongly characterized by a high numb er of p eople in young age and with lower prop ensity to consume, as the one c re ated in overseas countries by the emigration waves in 1870-1913, must b e a central f orce in at- tracting c apital f rom abroad. Moreover, Taylor and Williamson estimated that ab out ¾ of the British overseas investments could b e explained by high demand f or capital in regions where the massive p opulation movements generated high dep endency rates, then low saving rates.

3.2 Returns and Diversi fication

The “ classical explanation” f or the British capital outflows is concerning with the f act that overseas investments were providing higher returns than domestic returns. Evidence of this explanation comes f rom Edelste in (1994), who lo oked at year-end market value, annual dividends or interest paid and capital gains and losses, deriving “ realized rate of returns” and comparing results f or domestic and overseas investments . He f ound that the pref erence f or overseas securities was generated by an average return of 5.7%, rather than 4.6% f or domestic securities.

Following Edelstein, British investors were then rationally cho os ing overseas as- sets b ecaus e of thei r higher exp ected return. Howeve r, other studies obtained

di erent results concerning returns. In f act, in the opp osite direction of Edel-

stein went Davi s and Huttemback (1986), who analyzed data f rom firms ac- counting records and included other dimensions influencing re turn s, such fiscal

burden related to imp e rial def ence. Davis and Huttemback f ound significant

di erences b etween sectors and p erio ds, but, overall in the p erio d 1885-1904,

domestic activities generated higher returns than investments overseas and in the Empire. Observing Figure 5, we can remark that the highe st returns on equities b etwe en firms in United Kingdom, in f oreign countries and in the Em- pire f or each p erio d is quite volatile along the p erio d 1860-1912. Foreign firms were supplying higher rates of return in the fi rs t p erio d (1860-1869) and in the

last (1905-1912), w hile in other p erio ds were supplying inf erior returns or al- most equivalent (in the years b etween 1870 and 1904, the returns in the United Kingdom were sup erior, excluding 1885-1889). M ore over, enf orcing the thesis

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of bad distribution of income, the study of Davis and Huttemback argued that the ma j ority of investments overse as and to the Empire were made by the two richest categories of the p opulation. In f act, the “ elites” and the middle class collected around 79.4% of overseas investments and around 70.4% in the empire.

At least intuitively, it is then questionable that overseas assets were not supply- ing higher returns. Even if real investments and activities related to assets were not f urnishing higher returns b ecause of higher marginal returns f rom capital, it is f eas ible that a “ country risk p re mium” could have en hanced the returns. British investors were not only f acing the risk related of the f ailure of the firm, but they were only f acing challenging the p ossibility of a breakdown of the inter- national system, i.e. a war that would wip e out international trade and capital flows.

However, an analysis based on the simple comparison b etween return p oss ibili- ties is not complete and could lead to mistaken conclusions and to errors related to sample sel ection. As O er (1993) noted the results of Davis and Huttemback can b e questioned: some data exclusion could lead to m istakes in the e stimated returns and, in addition, the pro cedure based on firms’ accounting records is in- directly assuming that firms were f ollowing rules that could b e equally evaluated to contemp orary ac counting practices.

Observing rate s of returns in orde r to unde rs tand the asset demand in Victorian Britain can then b e questioned. We could claim that investors were rational and they were attracted by higher returns or we can assume irrationality among op-

erators, bu t we need to lo ok at the return-risk interaction in order to understand the demand. In this sense, Britis h demand f or assets were also drive n by high

p ossibilities of diversification. Investments overseas were able to supply financial

assets which provided the p ossibility of investing in high returns-medium risk prosp ects (e.g. US railway b onds). In other words, overseas activities provided

a higher ability to generate financial assets that could have improved the returns

of domestic investors th rough small correlation co e cients. Analyzing the ef - f ects of international diversification by obs ervin g prices, shares and dividends of secu riti es traded in London and in United State s, Chab ot and Kurz (2005) f ound that overseas investments supplied in the p erio d 1866-1885 a wide p os- sibility of p ortfolio diversification, increasing returns and reducing the risk. In other word, investing overseas was providing to Victorians investors the p ossi- bility of expanding the mean-variance f rontier, resulting in notably increases in wealth. Observing Figure 5, it is clear that f or the same level of risk, including in the p ortfolio a larger share of f oreign assets would have increased th e return significantly comparing it with the le vel of return that only British se curities could have generated.

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In a similar analysis, G o etzmann and Ukh ov (2004) showed that British in- vestors had access to securities and to inf ormation concerning p olitical and economic details f rom all over the world. Th ey showed that, even by assum- ing that exp ected returns on overseas investments (f or equal asset classes) were equal to domestic returns, it was profitable f or British investors to se nd a share of their capital to finance overseas activities. It is then neces sary to conclude that British inve stors were driven, even if in a less sophisticated way than to day, by a diversification motive and they were then rationally acting. In order to growth Britain required investments in capital and many economists at the end of XIXth century b elieved that British investors were biased toward overseas assets and then were the resp onsible f or the worsening of the British industry. However, evidence demons trate s that investors were not irrational, but were b ehaving in a risk-return rationale. Moreover, there is little evidence that little evidence that British firms su ered f rom a lack of capital as a result of UK overse as inves tment: in f act, since financial marke t were enough develop ed in Britain, established firms or industries f ound it easy to gain more f unds , e.g. by issuing equities 6 .

3.3 Supply side and preferences

Why the flows of capital ke pt on growing all over the p erio d 1870-1913 without any correction to reduce such a surplus? From the supply side, it is central to understand that the p erio d was characterized by the Pax-Britannica, by London as the world financial centre and by the British p ound as the dominant currency in the context of International Gold Standard. Investors were then able to access to a large numb er of inve stment p os sibilities directly investing at the L on don sto ck exchange. As we can observe f rom Figure 6, already in 1873 British op erators could have invested in Indian, Colonial and f oreign corp oration sto cks, in dominion and colonial governme nt se curities and in f oreign b onds and sto cks; moreover, these investment p ossibilitie s kept on growing in the p erio d.

Fo c using on s uch lens, as Temin (1987) prop osed, such a p ersistent flow of cap- ital without could b e explained by a change in investors’ pref ere nces. Af ter having assumed that investors were rational, it seem s constructive, in order to understand the capital flows d eterminant, to concentrate not on market imp er- f ections, but on imp erf ect substitutability b etween domestic and overseas ass ets. In the last de cades of XIXth century, since th e relevant markets f or investors were equities in domestic firms and f oreign b onds and since the market f or do- mestic equities were qu ite insignificant century, the main trade-o f aced was the f ollowing: illiquid d om estic equities versus liquid f oreign b onds. Assuming then imp erf ect substitutability b etween assets, we could explain capital outflows by arguing a change of investors’ pref eren ces toward more liquid ass ets. Moreover, this argument enf orces the “ income distribution” reason by Hob son explaining the high investment rates in Britain. If f act, if we assume a change in pref er-

6 Williams et al. (1983).

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ences of investors, we would b e able to explain not only the high level of capital exp orts, but even the lower investments rates in Britain and then the necessity of lo oking f or new uses f or excess savings.

Moreover, f ollowing Caballero et al. (2006), we can c lai m that all the British capital outflows could have b een explained not only by di erentials of growth p otentials through regions in the world, b ut even f or their heterogeneous ca- pacity to generate financial asse ts f rom real investments. It is then cl ear that

a capital investment in the New World coul d have b een more pro ductive, given

the hi gh er returns to capital f or low income countries, and then could have at- tracted investors lo oking f or higher returns. But in the same way, th e capital could have b een attracted as well by a di erent ability to generate fin an cial assets; as I have already argued, investors lo oking for asse ts with higher returns and mediu m risk had to invest in financial as sets that could have b een gener- ated only outside Britain. A clear example are U.S. railways: if we compare the London Sto ck Exchange comp osition in 1873 and in 1913, we can observe

that the share of American Railways passed f rom around 3.6% of the total nom- inal value to around 15.3% (see Figure 6). Such an increase could b e explained by a change in investors’ pref erences or by di erences in p otential risk-return p ossibilities.

4 Trade or Capi tal Markets?

Observing the British balance of trade ’s course along the p erio d 1870-1913, it

is clear that the pattern fluctuate strongly and that the long run trend showed

negative. From 3.2 % in 1872, the balance of trade decreased to 0.9 % in 1913, reaching a p eak of almost –5% at the turning of the century. Af ter analyzing th e intense capital outflow s f rom Britain during 1870-1913 and its so cio-economic determinant, we can observe that such deviations mu st derive exclusively f rom the saving-inves tm ent global b ehaviors and f rom the capital markets. But what drove the Britis h current account deterioration if capital were highly ou t-flowing f rom Britain?

The examination of the British current account deterioration can b e ruled f ol- lowing two alternative p ersp ectives of the same identity: the first conside r the trade pattern and the s econd f o cus on investments, savings and international capital flows. It is imp ortant to consider and analyze here the trade p ersp ectives in order to understand if related f orce cou ld have explained such worsening. In literature, the micro ec on om ic explanation by Matthews e t al. (1982) f ollowed this p ersp ective and argued that the worsening of British current account along the p erio d 1870-1914 was mainly due to exogenous trends in the British econ- omy. The avoidance of innovation and d iversification at the maturity stage of the pro duct life-cycle of imp ortant exp ort go o ds (e.g. cotton textiles), tied to the long-te rm decline in pro ductivity, could explain the reduc ti on of exp orts. Losses in pro ductivity could have rais ed the convenie nce to buy British go o ds

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in other countries, then worsening the balance of trade not relating the problem

to increased imp orts , but to reduced exp orts.

A second stream of thought in this p ersp ective f o cused on International C omp et-

itiveness 7 . The rapid industrialization overseas and increases in comp etitiveness

in other countries (such Germany) redu ced the desirability of British pro ducts

abroad b ecause of exp ensiveness. As a result total world share of British ex- p orts reduced significantly and concentrate in imp erial p ossessions, esp ecially

in Af rica and Asia. As we can observe f rom Figure 8, the changes in total pro-

ductivity in Britain relative to United States and Germany are not extremely high in the last decades of XIXth century. Howe ver, if we f o cus on the indus try, the relative worse pro ductivity p osition of United Kingdom to United States is quite relevant, as well as the losses in relation to Germany f rom 1891 to 1911.

Another explanation, advanced by Matthews et al. (1982) and Pollard (1985),

is instead related to macro economic e ect of overseas income. The rapid growth

of overs eas income improved the balance of payments, raising domestic prices and national in come and resulting in a overall loss of comp etitiveness; moreover, this e ect has b een develop ed along with sp eedily increasing c oal imp orts. This explanation has b een tied to the “ Dutch Dis ease” 8 argument. However, this last argument has b een thwarted by Rowthorn and Solomou (1991), who f ound that the imp ortance of such e ect must b e lim ited to short p erio d e ects over consumption and investments and only f or the Edwardian p erio d, 1900-1913.

Rowthorn and Solomou enf orced the argument that the main reason f or balance

of trade deterioration have to b e linked to the main phenomenon in 1870-1913,

i.e. the huge amount of overseas investments. In f act, we have to complement th e Dutch Disease explanation with the “ absorption e ect” explanation in order to obtain a complete understanding. The re levant increase of the capital exp orts of th e United Kingdom toward overseas countries generated a rapid growth of overseas income, wh ile the wealth accumulation overseas shif ted to British inve stors. The higher availability of wealth increased the national consumption and, given the dom estic pro duction, increased the net demand f or imp orts. Rowthorn and Solomou decomp osed the trade balance course into the dom estic inve stment e ect, the consumption prop ensity e ect and overse as income e ect:

they f ound that the ove r the long run, the consequences of the absorption e ect are evidence f or the deteriorating of the balance of trade through changes in consumption b ehavior.

Comparing the f act that Britain was mainly capital abundant and that over- seas countries were land abundant, it is clear that the New World had a rele-

7 See Sayers, R.S. (1965), “ A history of economic chan ge in England, 1880-1939” , Oxford; Kindleb erger, C.P. (1978), “ Economic resp onse: comparative studies in trade, finance and growth” , Cambridge, Mass.; Lewis, W.A. (1978), “ Growth and fluctuations, 1870-1913” . 8 When overseas in come is growing, reduction of price of exp orts relative to GDP deflator and increase in exp ort prices relative to comp etitors.

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vant comparative advantage in agriculture. The f ree trade could then explain why Britain concentrate on capital: di erences in relative advantages make f or British conve nient to shif t toward capital, instead of lo osing the struggle w ith overse as countries in the pro duction of f o o d. In addition, it could b e claimed that the huge flows of emigrants generated improveme nts in international trade, by re ducing transp ortation and communication costs, but evidence shows that all the e ects generated by the trade side of the economy could b e mainly driven by savings requirements and the n to capital exchanges through world regions. Trade related argument cannot explain neither the magnitude of such a huge amount of capital outflows, nor the deterioration of the trade balance.

5 Concl usi on

Capital flows cannot b e tied to j ust one rationale, but the phenomenon recorded in Britain in 1870-1913 must b e the f ruit of several f actors co-op erating in the British and the world macro-environment environment. Firstly, the p olitical en- vironment and the de mograph ic and economic situation in Europ e allowed f or huge movements of p eople, generating a change in the global equilibrium f or th e saving-investment relationship. Secondly, British excess of saving f ound its way through global saving requirements and capital b egan to outstrip f rom Britain toward overseas countries, wh ere the p opulation structure and the high p ossi- bilities to exploit capital-intensive activities were generating a strong demand f or savings.

The astonishin g flow of capital streaming f rom Britain in the p erio d 1870-1913 must b e related to the global imbalances and to exchanges that an highly op en international system could generate. Evidence suggests that capital flows were due to a change in the international system, which in turn gen erate d the demand f or British excess savings. British investors f ound then a higher profitable way to employ their savings and diversification provided the rationale. All trad e related arguments can j ust b e seen as a consequence of higher f orces in the international system.

References

[1] Bernanke, B. (2005), “ The Global Saving Glut and the U.S. Current Ac- count Deficit” , Sandridge Lecture, Virginia A sso ciation of Economics, Rich- mond, Virginia, Federal Reserve Board.

[2] Blanchard, O., F. Giavazzi and F. Sa (2005), “ International Investors, the U.S. Current Account, and the Dollar” in “ Bro okings Pap ers on Economic Activity” . Broadb erry, S.N. (1997), “ The Pro ductivity Race: British M an - uf acturing in International Pesp ective, 1850-1990” , Cambridge University Press, Cambridge.

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[3] Chab ot, B. and C . Ku rz (2005), "That is where the money was: Foreign Bias and English Investm ent Abroad, 1866-1885", u npublished manuscript.

[4] Davis, L. and R. Huttenback (1982), “ The Political Economy of Briti sh Imp erialism: Measures of Benefits and Supp ort” , Journal of Economic His- tory.

[5] Davis, L. and R. Huttenback (1982), “ Mammon on the Pursuit of empire:

The Political Economy of British Imp erialism, 1860-1912” , Cambridge.

[6] Edelstein, M. (1982), “ Overseas Investment in the age of High Imp erialism:

the United Kingdom, 1850-1914” , New York, Columbia University press.

[7] Edelstein, M. (1994) “ Foreign Investment and Accumulation, 1860-1914” in R.C. Floud and D. McCloskey (eds.), The Economic History of Britain Since 1700, Vol. 2, 1860-1939.

[8] Edelstein, M. (1994), “ Imp erialism: Cost and Benefit” in The Economic History of Britain Since 1700, vol. 2, edited by R. Floud an d D. McCloskey. 2nd ed. 2 vols. Cambridge: Cambridge University Press.

[9] Go etzmann, W.N. and A.D. Ukhov (2004), “ British I nvestment Overseas 1870-1913: A Mo dern Portfolio Theory Approach” , Yale ICF Working Pa- p er No. 05-03.

[10] Green A. , and M.C. Urquh art (1972), “ Factor and Commo dity Flows in the International Economy of m1870-1914. A Multi-country view” , Journal of Economic History 36, 217-52. Matthews, R.C.O., C.H.

[11] Feinstein and J.C. Odling-Smee (1982), “ British Economic Growth 1856- 1973” , Oxford. O er, A. (1993), “ The British Empire, 1870-1914: A Waste of Money?” , EcHR 46, 215–39.

[12] O’Rourke, K. and J. Williamson (2000), “ Globalization and History. The Evolution of a Nineteenth-Century Economy” , The MIT Press.

[13] Pollard, S. (1985), “ Capital exp orts, 1870-1914” , Economic His tory Review, 2nd ser., pp.489-514.

[14] Rowthorn, R. and S. Solomou (1991), “ The Macro economic E ects of Over- seas Investme nt on the UK Balance of Trade, 1870-1913” , Economic History Review 44, pp. 654-64.

[15] Stone, I. (1999), “ The Global Exp ort of Capital f rom Great Britain, 1865- 1914” , St. Martin’s Press, New York.

[16] Taylor, A. and J. Williamson (1994), “ Capital Flows to the New World as an Inte rgen eration al Transf er” , Journal of Political Economy 102, pp.

348-71.

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[17] Temin, P. (1987), “ Capital Exp orts, 1870-1914: An Alternative Mo del” , Economic History Review 40, pp. 453-58.

[18] Williams, K., Williams, J. and Thomas, D. (1983), “ Why are the British Bad at M anuf acturing?”

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Figure 1: Share of overseas income as a p ercentage of GDP, 1870-1913 (Feinste in,

Figure 1: Share of overseas income as a p ercentage of GDP, 1870-1913 (Feinste in,

1972)

income as a p ercentage of GDP, 1870-1913 (Feinste in, 1972) Figure 2: Total capital outflows,

Figure 2: Total capital outflows, UK, thousand of p ounds (Stone, 1999).

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Figure 3: Living standards and pro ductivity (O’Rourke and Williamson, 2000). Figure 4: Rates of

Figure 3: Living standards and pro ductivity (O’Rourke and Williamson, 2000).

and pro ductivity (O’Rourke and Williamson, 2000). Figure 4: Rates of return on equities (Davis and

Figure 4: Rates of return on equities (Davis and Huttemback, 1982).

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Figure 5: Mean variance f rontier f or di ff erent comp ositions (Chab ot

Figure 5: Mean variance f rontier f or di erent comp ositions (Chab ot and Kurz , 2005). Benchmark 1 include only British securities (British government b ond p ortfolio, British corp orate b ond p ortfolio, and British corp orate sto ck p ortfo- lio). Benchmark 2 consider BM1 and Foreign Governme nt Bonds. Benchmark 3 includes BM1 and Foreign corp orate b onds and Foreign corp orate sto cks.

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Figure 6: Nominal value (million p ounds) of securities quoted at London Sto ck Exchange

Figure 6: Nominal value (million p ounds) of securities quoted at London Sto ck Exchange (Go etzmann and Ukhov, 2004).

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Figure 7: UK trade balance as a p ercentage of GDP, 1870-1913 (Feinstein, 1972). Figure

Figure 7: UK trade balance as a p ercentage of GDP, 1870-1913 (Feinstein, 1972).

as a p ercentage of GDP, 1870-1913 (Feinstein, 1972). Figure 8: Comparative total f actor pro

Figure 8: Comparative total f actor pro ductivity, UK=100 (Broadb erry, 1997).

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